EA Slapped With Securities Class Action After Battlefield 4 Flop

By William Peacock, Esq. on December 26, 2013 2:46 PM

To us gamers, Battlefield has long occupied the second-fiddle status to Activision's Call of Duty franchise. Think Pepsi to Coke, market-wise. But Battlefield 4 had a chance to be different. With the release of two new gaming consoles, the Xbox One and the PlayStation 4, this was a new war altogether, and BF4 was shaping up to be a contender, with 21 awards at the annual E3 tradeshow, including GameSpot's Best of E3 award.

On November 15, the game dropped for the PlayStation 4, both literally and figuratively, and a week later for the Xbox One. Gameplay was plagued with glitches, online play (the core feature of the game) was unreliable, and made worse by a Distributed Denial of Service (DDOS) attack that crashed the servers.

In retrospect, the game wasn't ready for release. The flaws were so bad that EA had to pull programmers off of other games, and delay other releases, to work on fixing the glitches. This, of course, hurts sales for both BF4 and the other delayed games.

Who's Fault?

Obviously, a company shouldn't release a game that isn't complete, but lets play devil's advocate for a sec, shall we?

The online experience may have been a bit glitchy, but it was taken offline by malicious hackers. And the PS4 problems? The company, honestly or not, pointed to the console's firmware as the source of the glitches (before later taking the message down). Besides, imagine trying to program a game for two new platforms, which themselves weren't finalized until at or near the release date. It's aiming for a moving target.

Then again, we have a company whose competitor is releasing a game on launch day, it plans to do the same, and it has repeatedly built up the hype and made promises for release day. Can it really delay the game?

Misleading Statements?

Investor conference calls. You want to speak positively about your products. And when someone asks about the progress of your flagship BF4, how do you respond?

"We couldn't be happier with the quality of the games our teams are producing or the early reception those games are getting from critics and consumers. As many of you who attend can attest, EA had a spectacular showing at E3. We received 220 nominations, and brought home a record 116 awards, including Best of Show ... Two other games drew spectacular praise: Battlefield 4 coming this year from our DICE Studio..."

The complaint quotes a handful of other optimistic statements, but are those enough to qualify as misleading investors or fraud on the marketplace?

Stock Sales

Here's a fun piece of circumstantial evidence. According to the complaint, company executives had to have known about BF4's bugs, as they sold of millions of dollars worth of stock, after making the "all is good" statements, and after EA's stock rose from $23.83 per share to $25.41 in a single day in mid-July.

To be more specific, insiders sold more than $4.8 million in shares between late July and August. And execs continued to make promises about launch day availability for the two new consoles when holding conference calls in late October -- again, not mentioning any glitches. Senior execs dumped another $8.5 million in stock in the ensuing days.

On November 15, the "next-gen" console sales, and the botched release, ensued. After rising 54 percent on the year before release, the stock plummeted to around $21 per share.

The Lawsuit

Filed on December 17, the suit alleges fraud upon the marketplace, and numerous violations of the Securities and Exchange Act, including violations of §10(b) and Rule 10b-5, 17 C.F.R. §240.10b-5, and for the individual executives, §20(a).

For those unfamiliar with securities regulations, those provisions prohibit false or misleading statements and allow investors a broad right to sue for their reliance on such statements.